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Section 106 Agreements

When planning permission is granted subject to conditions relating to matters other than the physical nature of the building, a “section 106 agreement” (referring to s106 of the Housing and Planning Act 1997) is drawn up.

When one of the conditions for grating a planning permission is that some or all the homes are affordable to local people, the s106 agreement will set out how the authority will ensure the homes are "affordable in perpetuity" as required by Planning Policy Statement 3, as well as what is meant by 'affordable', 'local'; and 'perpetuity'.

A model s106 agreement has been set by the Department of Communities and Local Government for the use of local planning authorities. However, each local authority ended up producing its own document and setting its own definitions for what is 'affordable' and what is 'local'.

CLTs share the aim of wanting to maintain affordable homes which is the Government's advice to local planners on the subject. However, CLTs also need flexibility and the ability to finance the scheme and therefore two main points should be kept in mind:

  •  there should be a clause stating that the affordable requirement will not apply to a mortgagee in possession i.e. the bank or building society or other lender can take possession to recover a mortgage debt and is not required to keep the home affordable. This runs counter to “in perpetuity” but it provides the certainty and simplicity that lenders require,
  •  the local definition will involve a “cascade” where households from the parish have top priority, then those from surrounding parishes, and then from the whole district. Mortgage providers favour a process in which choosing an applicant requires no long than 6 weeks.

Some local authorities have also wanted to define a maximum sale price for part equity homes related to local incomes. This is inflexible: for example it does not allow two homes to be sold for, say £100,000 and £70,000 but requires both to be sold for no more than £85,000.

A section 106 with a “mortgagee in possession” clause and a cascade definition which seems likely to be acceptable was agreed between Worth Matravers CPT and Purbeck District Council. Click here to view the document. 

Where - usually in urban areas - it is acceptable for the homes to become owned outright provided the CLT uses the payment received to re-provide the affordable home elsewhere, a more relaxed model may be used.